Keeping Canada Close

February 9, 2012 Topic: EnergyPolitical EconomyTrade Region: CanadaUnited States

Keeping Canada Close

Rejecting the Keystone XL pipeline isn't in America's or Canada's interests. If Obama does so, Ottawa will cozy up to Beijing.


History, geography and economic logic combine to make America and Canada close partners. Today, Canada is being shaken up by the uncertainty of a U.S. election year, and some analysts suggest it should "look east" to Asia or "diversify" its trading portfolio. Canadians should ignore these calls. Canada needs to find the right balance for its national interests. But the danger exists it will shift too suddenly—and there is no better example than the current negotiations with the United States on the Keystone oil pipeline.

Obama's Energy Reality


On January 17, President Obama’s Council on Jobs and Competitiveness said that the continuing importance of traditional fuels, combined with uncertain supply lines ”require the United States to optimize all of its natural resources and construct pathways (pipelines, transmission and distribution) to deliver electricity and fuel." It continued that "permitting obstacles that could threaten the development of some energy projects" would "negatively impact jobs and weaken our energy infrastructure.”

Later that day, acting on “advice” from the State Department, The president delayed—and some fear de facto cancelled—completion of the Keystone oil-pipeline project. If the TransCanada corporation completes the project, the thirty-six-inch conduit would carry 1.3 million barrels a day of unrefined petroleum from Canada’s oil sands of Alberta to refineries and shipping assets in Nederland and Port Arthur, Texas.

The United States consumes 15 million barrels of oil per day, of which about 11 million is imported. So Keystone oil would meet almost 9 percent of American needs and provide necessary employment. Despite its January message that Keystone was contrary to U.S. national interests, the August 26, 2011, State Department environmental-impact statement affirmed the project would have “limited adverse environmental impacts.” Since the environmental and economic elements of his rejection don’t add up, suspicion exists that the president acted politically to sooth the ardent, implacable environmentalists in his voting base.

Much of the pipeline is already built and in operation. The rejected completion plan would move more oil but expose less terrain to “environmental risk.” Transcanada's interactive map shows that oil now moves from Hardisty, Alberta, by way of Steele City, Nebraska, and Cushing, Oklahoma, with a side trip to Wood River and Patoka, Illinois. Four hundred thirty-five thousand barrels a day move between Alberta and Illinois, and 501,000 barrels a day find their way to Oklahoma. Obama rejected a short-cut, extension and capacity enlargement, Keystone XL, which would ship 1.3 million barrels every day—all via a bigger pipe and a shorter distance, making a more direct connection between Hardisty and Port Arthur.

When Canadians Respond

Canadian prime minister Stephen Harper said the resulting impact on Canada's national interest was a "wake-up call." Harper now suggests that Canada look across the Pacific to sell its oil and warned his countrymen of "the degree to which we are held hostage to decisions in the United States, and especially decisions that may be made for very bad political reasons."

It isn’t the first time Canada’s perceived national interest, dignity and independence has suffered at the hands of an American president. Lester B. Pearson, Canada’s prime minister between April 1963 and April 1968, came into office after promising to reverse the previous government’s failure to place Bomark missiles (which protected U.S. cities) on Canadian soil. He also signed the US/Canada treaty that allowed rational North America-wide integration of automobile production, to great benefit of both nations.

But in April 1965, after Pearson gave a speech in Philadelphia recommending a halt to the bombing of North Vietnam, President Lyndon Johnson’s aides phoned the prime minister and summoned him to Camp David. Upon arrival, the 6’4” president seized the 5’ 10” prime minister by the lapels and bellowed, "Don't you come into my living room and piss on my rug."

President Nixon called Prime Minister Pierre Trudeau a “pompous egghead.” In the George W. Bush White house, Prime Minister Jean Chrétien was known as "Dino," short for dinosaur. There is a roller-coaster element in the relationship: Prime Minister Brian Mulroney and President Ronald Reagan sang this duet in full: “When Irish eyes are smiling, Sure, 'tis like the morn in Spring.” Together, they created the world’s largest bilateral free-trade relationship.

Stopping A Difficult Divorce

North American economic health is impaired by bickering and instability among the continent's political elites. A stable U.S. trade relationship is essential to Canada. But nationalist sentiment, antagonistic toward America, has long been a threat to Canadian economic health and North American economic integration. And Obama’s progressive Green rejection of the Keystone project may push conservative Steven Harper toward the “diversified economic internationalism” long advocated by the Canadian Left.

For example, Prime Minister Trudeau’s Left-leaning Canadian secretary of state for external affairs minister Mitchell Sharp in 1972 advocated “The Third Option.” It was a rejection of existing close relations with the United States in favor of international "diversification." Sharp claimed his plan to actively reduce U.S. and Canadian economic and cultural links would "develop and strengthen the Canadian economy and other aspects of its national life.” Mr. Harper is no Son of Sharp, but Obama’s economic nationalism and Green radicalism has nearly made him so.

Exports and imports between the two countries dominate both nation’s trade statistics. Exports and imports are 29 percent and 30 percent, respectively, of Canadian GDP, and 11 percent and 14 percent in the United States. Seventy-five percent of Canada’s exports go “down South,” and 50 percent of its imports come from there. Nineteen percent and 14 percent are the corresponding American numbers.

In 2010, despite the recession, Canada’s exports to the United States grew 9 percent, and imports expanded 10 percent. Canada is a significant source of major U.S. total imports: food, 22 percent, metals and mining 20 percent, energy 24 percent, chemicals 15 percent, wood and paper 49 percent, automobiles 24 percent, aerospace 27 percent. In every case, Canada is more important to the United States than any other nation.

In 2009, Canada exported $77.9 billion of energy products, 97 percent to the United States. Canada provided 21 percent of U.S. crude oil imports.

A New Suitor

Emerging Asia needs the same commodities. And they have the money to buy them. They are willing to help build the East-West infrastructure—pipelines, railways, roads and ports—to enable the Canadian export machine to redirect its trade. Obama’s pronouncement on jobs, only slightly modified, applies to Canadian-Chinese relations too: if pushed into a shotgun marriage by Green radicals and economic nationalists, the new Trans-Pacific partners will aim to optimize all natural resources, construct pathways to deliver electricity and fuel, remove obstacles that threaten the development of energy projects and create jobs to build a mutually profitable energy infrastructure.

Cool-headed Canadians hope Obama's Keystone decision will not precipitate such a risky departure from U.S.-Canadian mutual economic interests.

Professor Tom Velk is director of North American Studies at McGill University.

Image: rblood